Flood-insurance rate increase hits hard in Florida

September 28, 2013|By William E. Gibson, Washington Bureau

WASHINGTON — Flood insurance premiums will shoot up for thousands of Florida businesses and homeowners starting Tuesday, sparking fears that the rate spike will thwart home sales and erode property values in many of the state's low-lying communities.

Flood-prone Florida will be the hardest-hit state because it is home to more than a third — 37 percent — of the nation's policy holders, with more than 2 million.

Most will pay a little more for insurance. But some owners of property in high-risk areas — such as older oceanfront condos or inland homes on the banks of streams or rivers — face an increase of thousands of dollars a year for flood insurance that mortgage lenders require them to buy.

"My heart breaks for these people. I just feel terrible," said Jonathan D. Rausch, an insurance agent in Pembroke Pines who had to inform owners of a nine-unit condo building on Hollywood Beach last week that a new policy would cost them $36,584 a year — seven times the $5,126 rate he quoted three weeks ago.

"The new rates are upon us, and everyone is in tremendous sticker shock," he said. "These rate increases are just crazy, out of control. They are unaffordable, and people are scrambling down here."

A bill passed by Congress last year to reform the National Flood Insurance Program is having unintended consequences, creating a complicated mix of winners and losers and a lot of confusion. Faced with mounting complaints, U.S. Sen. Bill Nelson, D-Fla., and other Floridians are urging a delay or change of the law. But those efforts appear doomed before the law takes full effect Oct. 1.

Compounding the confusion are updates made to federal flood plain maps in the past several years that have put some homes inside flood areas for the first time. In Broward County, though, new maps have moved many properties out of areas deemed risky, sparing them from requirements to buy insurance.

The flood insurance program was created in 1968 to make insurance affordable to owners of structures already built in risky areas. After a series of floods in the '60s, providing cheap insurance was considered better than sending disaster aid.

Roughly one in eight of the more than 2 million Florida properties covered by the program are still subsidized, but most owners of more recently built homes and businesses already pay rates that reflect the actual risk.

The program fell $18 billion into debt after Hurricane Katrina slammed the Gulf Coast in 2005 — and since has swelled to $24 billion — thanks to disasters like last year's superstorm Sandy. That prompted Congress to decide last year to gradually phase out most subsidies and impose full-risk rates for newly bought property or to replace lapsed policies.

That's because home buyers will see a sharp increase in premiums compared to those paid by the previous owner in a designated flood zone.

Craig Fugate, a Floridian who leads the Federal Emergency Management Agency that runs the program, told a Senate panel that yearly flood insurance premiums for a home in the lowest parts of a flood plain could cost as much as 10 percent of the home's total value. That means $25,000 a year for a $250,000 home.

"We will see a lot of people who will just walk away from a deal," said John Sebree, senior vice president of public policy for the Florida Realtors. "The current owner may be paying $900, but the new buyer may see their rate at $9,000 ... It's going to be pretty ugly."

Defenders say such extremely high rates affect a tiny number of properties, usually in wealthier enclaves in the most vulnerable places.

"These subsidies are putting people in harm's way," said Rachel Cleetus, climate economist for the Union of Concerned Scientists. "And they are putting taxpayers on the hook."

A total of 268,646 Florida properties have subsidized policies. Roughly one in four are in South Florida: 47,632 in Miami-Dade County, 19,551 in Broward County, and 4,834 in Palm Beach County.

Many, but not all, of these subsidies will be phased out, starting with vacation or second homes in vulnerable areas.

Beginning on Tuesday, business structures and older primary residences that have experienced severe or repeated flooding gradually will lose their subsidized rates. Their premiums will increase by 25 percent a year until they reach the full-risk rate.

About 103,000 older primary residences will keep their subsidies — an attempt to ease the burden for those accustomed to lower rates. But they too face a rate hike starting in October — averaging 16 to 17 percent — as part of an annual adjustment in premiums.

Properties purchased since July 6, 2012, when the reforms were signed into law, and those with lapsed policies face full-risk rates.

That's the case with the Hollywood condo building, where the owners allowed their policy to lapse before applying for a new one. A 30-day waiting period pushed the start date beyond Oct. 1, leading to a whopping $36,584 premium.

"They are freaking out," said Rausch, their insurance agent. "They are covered for fire and for hurricanes. They just won't have flood coverage because they simply can't afford it. How can anyone afford $36,000?"